Know Before You Owe Federal Student Loan Act of 2025

This bill aims to enhance transparency and borrower awareness in federal student loan programs by revising counseling requirements and introducing new disclosure mandates. It renames "Entrance Counseling" to "Pre-Loan Counseling" and expands its scope to apply to the first disbursement of each new loan . The updated counseling must include a detailed estimate of the borrower's monthly payment compared to their estimated post-tax income, factoring in living expenses, health insurance, and projected starting wages for their program of study. This comprehensive financial outlook helps students make more informed borrowing decisions. The revised pre-loan counseling also requires institutions to advise students to borrow only the minimum necessary, warn them about high debt-to-income ratios, and present options for reducing borrowing. Crucially, the bill introduces a new requirement for students to manually enter the exact dollar amount of Federal Direct Loan funding they wish to borrow. This ensures active confirmation before loan disbursement, following completion of all pre-loan counseling requirements. Additionally, the legislation mandates that lenders provide quarterly statements to borrowers during periods when loan payments are not required, such as while in school or during deferment or forbearance. These statements must clearly outline the original principal, current balance, interest rate, and total interest paid on each loan. They also explain the option to pay accruing interest during these periods and warn about the consequences of interest capitalization if not paid, aiming to keep borrowers informed about their growing debt.